A question arises as to which country might be the first to actually implement a central bank digital currency? One candidate might be Singapore. We won't know for sure until someone actually announces they will implement one. But here are some articles that suggest Singapore is as good a candidate as any to jump in the water first.

"The Monetary Authority of Singapore said last week that it had conducted a test run of a digital prototype of Singapore dollar for interbank transfers, further cementing the nation's position as Asia's fintech leader.

The project, a collaboration between Singapore's central bank and blockchain consortium R3, was first announced in November during a week-long fintech festival in the city state."

Note: R3 is a consortium of various banks that looked at a variety of blockchain solutions offered by Intel, IBM and Monax back in 2016. It appears that IMB has a paticular interest in Singapore as we can see from the two articles just below.

"IBM plans to open a blockchain innovation center in Singapore in collaboration with the government, as the city-state strives to become Asia's main financial technology hub.

IBM (IBM, +0.15%) will be working with the main economic planning agency, the Singapore Economic Development Board (EDB), and the Monetary Authority of Singapore (MAS) to accelerate blockchain adoption for finance and trade."

. . . .

"Singapore is rushing to reinvent itself as Asia's fintech hub to fend off a regulatory threat to its wealth management industry and revive a sluggish economy."

My added comments: It is pretty clear from these articles that Singapore is motivated to be a leader in new technology related to finance and commerce. IBM seems to be interested in Singapore as well investing a lot of time and money there to be on the leading edge. (see this article for examples). IBM also announced this win for their version of distributed ledger technology.

It will be interesting to see how things unfold in the coming months and years. We talked about the current status of cryptocurrencies recently in this article. All kinds of entities are working on it.

In a free market based world, competition should benefit the consumer as various competing products attempt to deliver the best product and service at the least cost. Hopefully, this is what will see in the future as new technology fuels change and innovation, even for money. --------------------------------------------------------------------------------------------------------

Added note: CNBC - It's a good time to be a money launderer thanks to cryptocurrenciesAs if the whole topic (cryptocurrencies) is not confusing enough as we seem to get new currencies almost weekly, now the whole new problem of how to regulate all this fairly arises. It looks like Singapore and the US are starting to try and grapple with this lately per this new CNBC article.The CNBC article above does a pretty good job of discussing the issue in a balanced way. Proponents of more regulation are concerned about potential abuse of these currencies by money launderers and also the lack of protection for people who invest in them as compared to securities where more regulations for consumer protection exist. Opponents see regulations as a governmental effort to suppress alternatives to national currencies and prevent privacy in financial dealings. These are huge issues that are not likely to be resolved to everyone's satisfaction any time soon.On top of all this we are going to have tax issues likely adding more confusion. It appears that the US and some other countries will tend to treat these private cryptocurrencies more like securities (stocks/capital assets) where record keeping for capital gains and losses will be needed for many transactions (see questions 12 &13 here for transactions less than $600). We can assume that any state sponsored digital currencies will likely be viewed as legal tender and not viewed like securities.But then we have BullionCoin. Based on the information available on BullionCoin on this web site, it seems like a possibly different kind of product. As I understand them, BullionCoins are essentially digitally created contracts recorded on a block chain that grant the owner legal title to an exact amount of actual allocated gold or silver stored in a real vault. So will they simply be viewed as if they are actual gold and silver? Or, is it possible that BullionCoins used in commerce at merchants accepting them may qualify for like kind exchange tax treatment? (Items 1,2,and 3 in this article appear to say they would not, but rather a taxable sale has taken place). If a taxable sale has taken place, but the transaction is less than $600 (see example below), is any reporting required? (note: the white paper for BullionCoin will be released next week and should be viewed as the official information on BullionCoin)My understanding is that when someone spends a BullionCoin, it is not converted (sold) into a fiat currency at that time. The buyer and the seller must both have a BullionCoin ewallet to conduct a transaction. The buyer is transferring legal title to an amount of actual gold or silver to the seller, not fiat currency. The amount of gold or silver transferred is calculated based on the price of gold and silver in the fiat currency of the country where the transaction is taking place at the moment of the sale (see example below). The buyer is exchanging his legal title to the gold or silver to the seller in return for a good or service. I have no idea how the IRS would view this for tax reporting. Also, individual states in the US may look at it differently for their state.Example transaction using a BullionCoin based on my understanding of it: Buyer Ron wants to buy some shoes that cost $40 in US currency at a shoe store that will accept his payment using BullionCoin. Ron decides to make payment using one gold BullionCoin (the legal title to one gram of actual gold recorded on a contract on the block chain). The gold price at the time of the sale is $1235 an ounce. So, one gram of gold (there are about 31 grams of gold in an ounce) is worth right at $40 US dollars at that moment. The shoe seller accepts the one gold BullionCoin for payment. He now has the legal title to one gram of actual gold held in his account, not $40 in US dollars. Short version. The buyer exchanged one gram of gold for the shoes (but not actual gold in hand, just a legal title to one gram of actual gold vaulted somewhere else). In effect, I see this as basically the same thing that happened under the gold standard in the US when someone paid for something at the store with gold certificates(paper bills exchangeable for real gold vaulted at the bank). Instead of exchanging a paper certificate, they are exchanging a new technology digital one. (note: according to the US Treasury, old US gold certificates still have legal tender status at face value, but the US is no longer required to exchange actual gold for them - go here and scroll down to the question on gold certificates)What kind of taxable event just took place here for Ron the shoe buyer? None (since the transaction is less than $600)? A capital gain or loss on the sale of gold (but the gold was not sold, it was exchanged for shoes)? Something else new and not yet defined in the IRS regulations? I have no idea. Perhaps this is something that will be discussed in the white paper for BullionCoin upon its release.Added note 8-7-17: It appears that efforts to make it easier to report Bitcoin transactions for tax purposes are being made perthis article in NewsBTC.com.

2 comments:

Obviously, cryptocurrencies will be the future. It will be a race to see whether one backed by gold and silver bullion or backed by government's debt/taxation wins out. A cryptocurrency backed by gold and silver is denationalized and global, whereas cryptocurrencies backed by a government debt/taxation could be numerous. But governments make the tax laws to skew things in their favor.

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